Continual technological advancements in smart devices that provide users with enhanced visual and listening experiences are driving growth in the online entertainment industry. Moreover, the easy availability of internet service at affordable prices, along with the growing data tariffs, are providing an impetus to the market's growth.
Looking forward, IMARC Group expects the global online entertainment market to reach $2.04 billion by 2032, exhibiting a CAGR of 18% between 2024 and 2032.
Moreover, AI has dramatically transformed the media and entertainment industry, changing how content is created, consumed, and personalized. Recently, AI technologies have been incorporated into various areas, such as content creation, recommendation systems, audience analytics, and immersive experiences.
Against this backdrop, let’s compare two entertainment stocks, Netflix, Inc. (NFLX) and The Walt Disney Company (DIS), to analyze streaming supremacy.
The Case for Netflix, Inc. Stock
With a $288.43 billion market cap, Netflix, Inc. (NFLX) provides entertainment services. It offers TV series, documentaries, feature films, and games across various genres and languages.
NFLX’s stock has gained 42.5% over the past six months and 67.1% over the past nine months to close the last trading session at $669.38.
NFLX’s trailing-12-month net income margin and EBIT margin of 18.42% and 22.54% are 524.2% and 156% higher than the industry averages of 49.52% and 8.80%, respectively. Likewise, the stock’s trailing-12-month levered FCF margin of 55.88% is 605.3% higher than the industry average of 7.92%.
For the fiscal first quarter that ended March 31, 2024, NFLX’s revenues rose 14.8% from the year-ago value to $9.37 billion. Its operating income stood at $2.63 billion, up 53.8% year-over-year. For the same quarter, its net income and earnings per share increased 77.9% and 83.3% year-over-year to $2.33 billion and $5.28, respectively.
Analysts expect NFLX’s revenue for the second quarter (ending June 2024) to increase 16.4% year-over-year to $9.53 billion. Likewise, its EPS for the same quarter is projected to grow 44.8% year-over-year to $4.76. Moreover, the company has surpassed revenue and EPS estimates in three of the trailing four quarters.
NFLX’s POWR Ratings reflect a robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and Sentiment. NFLX is ranked #19 out of 51 stocks in the B-rated Internet industry.
In addition to the POWR Ratings I’ve just highlighted, you can see NFLX’s ratings for Growth, Value, Momentum, and Stability here.
The Case for The Walt Disney Company Stock
Valued at $182.25 billion by market cap, The Walt Disney Company (DIS) operates as an entertainment company worldwide. It operates through three segments: Entertainment; Sports; and Experiences.
DIS’ stock has gained 6.4% over the past six months to close the last trading session at $99.97. Over the past month, the stock has plunged 5.1%.
DIS’ trailing-12-month EBIT margin of 12.23% is 39% higher than the industry average of 8.80%. Likewise, its trailing-12-month levered FCF margin of 9.28% is 17.2% higher than the industry average of 7.92%. However, the stock’s trailing-12-month gross profit margin of 35% is 29.7% lower than the industry average of 49.80%.
During the second quarter, which ended March 31, 2024, DIS’ revenues increased 1% year-over-year to $22.08 billion. Its total segment operating income came in at $781 million, up 72% over the prior-year quarter.
However, the company’s net loss attributable came in at $216 million, compared to a profit of $1.27 billion in the previous-year quarter. Also, its loss per share came in at $0.01, compared to an EPS of $0.70 in the previous-year quarter.
Street expects DIS’ revenue for the third quarter (ending June 2024) to increase 3.4% year-over-year to $23.10 billion. The company’s EPS is estimated to grow 13.3% year-over-year to $1.18 for the same quarter. Moreover, the company has topped consensus EPS estimates in each of the trailing four quarters, which is excellent.
DIS’ mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our proprietary rating system.
DIS has a C grade for Stability and Quality. It is ranked #5 among 13 stocks in the Entertainment - Media Producers industry.
Click here for the additional POWR Ratings for DIS (Value, Growth, Sentiment, and Momentum).
Should You Invest in Netflix or Disney for Streaming Supremacy?
The entertainment industry is steadily expanding due to rising consumer demand and technological advancements. The rising popularity of OTT platform subscriptions and the escalating number of OTT application downloads are also creating a positive market outlook. The growing popularity of streaming services is also shifting global preferences.
Leading entertainment companies NFLX and DIS stand to capitalize on the optimistic industry outlook. However, NFLX’s strong financial performance, higher profitability, and promising near-term outlook favor it as the better stock pick.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Internet industry here and the Entertainment - Media Producers industry here.
What To Do Next?
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NFLX shares were trading at $682.63 per share on Monday afternoon, up $13.25 (+1.98%). Year-to-date, NFLX has gained 40.20%, versus a 15.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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